On December 11, 2013 we acquired a 99,797 square foot Class A, three-story office building fully leased to ViaSat, Inc. (NASDAQ: VSAT) for $18,250,000 ($182.87 per square foot).
- The property houses the operations of ViaSat’s broadband satellite services segment under its Exede and WildBlue brands. Additionally, the property houses the Network Operations Center responsible for monitoring and controlling ViaSat’s international network.
- The property features a data center on the 1st floor which acts as a testing lab for ViaSat’s internet engineers and technicians as well as a call center on the 2nd floor that serves ViaSat’s customers.
- We assumed the in-place 10-year lease with a remaining term of 7.7 years at close. Initial base rent is $1,408,365 ($14.11 psf) with 4% increases every two years.
- We financed the acquisition with Guggenheim Commercial Real Estate Finance LLC. Guggenheim provided an $11.3 million mortgage at a fixed rate of 4.74%. The loan has a 7-year term with a 25-year amortization period.
- The going in “cash” cap rate is 7.65%, and the average cap rate over the life of the lease is 8.21%.
- High quality real estate in a strong market – The three-story, Class A building was constructed in 2008 and is LEED Gold certified. The property is located in Englewood, CO 15 miles south of the Denver central business district (CBD). At the time of acquisition, the submarket had a Class A vacancy rate of 8.2%. Denver was ranked 8th in the Nation for High Tech Services jobs and Office rent growth over the past two years by CBRE Econometric Advisors.
- Critical location for Tenant – The property houses one of two Network Operation Centers for ViaSat and contains a data center which acts as a testing lab for ViaSat’s internet engineers and technicians.
- Solid Tenant credit – ViaSat generated $1.4 billion in LTM revenue and $286 million in LTM adjusted EBITDA as of Q3 2015, up from $688 million in revenue and $101 million in EBITDA as of FY2010. Total debt / LTM EBITDA as of Q3 2015 was 3.0x, down from 4.5x as of FY 2013.
- Good configuration for multiple tenants – If ViaSat were to vacate, the building has column free 33,000 SF floor plates which could be subdivided for multi-tenant use, thus mitigating re-tenanting risk.
- Acquisition was below replacement cost – The purchase price of $182 per square foot compares favorably with a projected replacement cost of $200 per square foot. Based on a replacement cost of $200/SF and an 8.0% cap rate rents would have to be $16.00 per square foot net to justify new construction. This replacement cost rent supported by an asking rent of $18.00 net for a build to suit located a few miles from the property.
The property is located in Englewood, CO which is 15 miles south of the Denver CBD. At the time of acquisition, the submarket had a Class A vacancy rate of 8.2% compared to the 11.0% Class A vacancy rate for the entire metropolitan market. Denver has been one of the fastest growing markets in the US post-recession and currently has an unemployment rate of 4.2%. Denver was ranked 8th in the nation for high tech services jobs and office rent growth over the past two years by CBRE Econometric Advisors.
ViaSat is an innovator in satellite and other wireless networking systems and services. ViaSat is currently rated B+ by S&P and is listed on the NASDAQ under the ticker symbol “VSAT”.